Thursday, 15 October 2020

Looking Back on Some Portfolio Disposals


For several years, from moving to early retirement in 2008 to state pension in 2018, I was dependent on income generated from my investments to pay the bills. I certainly could not have made ends meet just from the interest on cash savings. Therefore some of the UK Growth and Income investment trusts were an important part of my investment mix during this period. The three trusts which formed the backbone of my income strategy were City of London (CTY), Aberforth Smaller Companies (ASL) and Temple Bar (TMPL).

By 2018, however I started to receive the state pension of £8,500 and so became much less in need of this income. It was around this time that I was starting to compare the performance (total return) of my UK-based investments and also think about climate change and how this might impact my investments, especially the big oil companies who were coming under increasing pressure on greenhouse gas emissions. I was paying more attention to the weighting of the fossil fuel companies in my collective portfolio holdings and wondering about the long term sustainability of returns from these sectors. 

I actually remember emailing Job Curtis at CTY and the managers of Aberforth and requesting they pay more attention to climate risk and suggesting they reduce/dispose of their fossil fuel holdings (a long shot I know). To be fair, both responded but politely declined my suggestion!

Disposals

And so I had a decision - compromise my values and continue with my investments and hope they come around to reducing the oil company holdings over time; or sell my investment trusts and replace them with something more ethical and in line with my values. Of course, I chose the latter.



Temple Bar was the first to be sold at the price of £12.10 in October 2018 and replaced with Baillie Gifford Positive Change @ 160p.

The following February I sold CTY held in both my SIPP and ISA @ 400p and also Aberforth in my SIPP @ £11.25 and added to my Positive Change fund as well as the initial purchase of iShares Clean EnergyETF @ 433p and also added Orsted @ DKK 500.

Making such big dramatic moves to a long-standing strategy which had served me well for many years is a leap of faith but luckily, this has turned out to be a good move in hindsight (so far). The climate-friendly green investments have all done well - Orsted currently more than doubled to DKK 1,035, iShares Clean Energy more than doubled to 908p and Positive Change up 90% at 304p. The disposals have been hit badly by the Covid pandemic and drop in the oil price - CTY down 19% at 325p, TMPL down 42% at 695p and Aberforth down 22% at 880p.

2 Yr Chart for CTY, ASL & TMPL
(click to enlarge)


Just looking at the final results for City to end June 2020, both Shell and BP were still top 10 holdings but much reduced in weight 5.4% compared to 10.8% in 2018 and now don't feature at all.



Conclusion

I can't help but conclude that these (and others) fund mangers have been blind to the consequences of the huge global shift in the tectonic plates of the transition from fossil fuels to renewable energy. As a result they have been caught out chasing the higher income offered by the oil & gas sector in recent years and are now paying the price of their short-sighted approach. It came as no surprise to see the likes of Shell and BP slash their dividend payments by 50% earlier this year.

I hope the events of recent months will serve as a wake-up call to these fund managers to take climate change more seriously and avoid those companies which fail or stubbornly refuse to align their business with a world of 1.5C. I just cannot see the point in continuing to back companies whose business models are completely at odds with a sustainable long-term future for the planet.

Over to you...do you think your fund managers take climate issues seriously? Do they still continue to hold fossil fuel companies in their portfolio? How have they performed so far this year? Feel free to leave a comment below.

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